Examination of Witnesses (Question Numbers
160-179)
MR ALISTAIR
BUCHANAN
25 NOVEMBER 2008
Q160 Mr Wright: What is the timescale
for this to happen?
Mr Buchanan: It comes back to
the timescale for the previous debate. The board will be signing
off the package early in the New Year.
Q161 Mr Wright: Can you be more specific?
You say early in the New Year, these dates sometimes slip.
Mr Buchanan: I would be disappointed
if we have not taken everything to the board, which is in the
middle of February, for final sign-off. It may be January; it
may be February, but certainly in the first two months of next
year.
Q162 Mr Wright: So, therefore, you
would be in a position to suggest that to the new Committee when
they call you before them, which I am sure they will, that everything
is all above board and the `Big 6' have conformed to what your
requirements are. Is there any issue about giving rebates to customers
that have been overcharged in the past?
Mr Buchanan: I am waiting to see
what the consultation feedback is, maybe a number of the consumer
groups have put in some interesting thoughts there, so I do not
want to prejudge that. I am going to wait to see what we get next
week.
Mr Wright: I know there is a big issue
about customers being overcharged with direct debit and I know
the Chairman wants to ask questions on that particular issue.
There are a number of issues about overcharging that customers
have had for many years, with quite significant differences in
terms of prepayment meters, standard credit, and differences in
on-line charges.
Q163 Mr Weir: We all welcomed the
report and the action on prepayment meters, which is long overdue,
but some groups have voiced concerns under the cost reflective
policy that some who are fuel poor—and we appreciate that
by all means not all prepayment meters are used by fuel poor people—but
there is a significant number and some companies have used prepayment
meters specifically for fuel poor customers who have got into
arrears with their bills. The National Housing Federation, for
example, gave us a report that many of these fuel poor customers
will still be paying £51 a year more for using a prepayment
meter than under the cost reflective model. Is there any prospect
of looking at a way of eliminating this for fuel poor customers,
if not for all prepayment meter customers, to ensure that those
who have found themselves in this position, because of fuel poverty,
do not end up paying more than they would if they were not fuel
poor?
Mr Buchanan: This is where we
go into that interesting world between Ofgem and the Government.
One of the riders of this report is the importance of cost reflectivity
and for us, as a regulatory body, that obviously is very important.
Whether the Government picks up your challenge and says that they
will take action in this area, I do not know.
Q164 Mr Wright: We did ask the Minister
yesterday.
Mr Buchanan: That is where it
probably rests.
Q165 Chairman: Before I get on to
direct debits, briefly, can I seek your clarification on one thing;
I am a bit puzzled. You have indicated to this Committee, helpfully,
that this issue of differentials between prepayment meters, standard
credit and direct debit terms can be dealt with by a licence condition.
Is that correct?
Mr Buchanan: Yes.
Q166 Chairman: The Chancellor said
yesterday that if sufficient progress was not made in the next
few months in closing gaps in pricing between payment methods,
the Government would use statutory powers to end unjustifiable
pricing differential. My understanding is that Ofgem already has
those statutory powers and it is Ofgem that will use them. There
is no criticism here, I just want to clarify that he is not suggesting
that new legislation is required, he is saying the existing power
that you have are sufficient to deal with the problem.
Mr Buchanan: I cannot clarify
that for you, I am afraid, Chairman. It seems to me that we are
either going to get there by the companies volunteering this,
or we are going to put licence conditions in place, and/or the
Government will either legislate for licence conditions or legislate
itself. Therefore, I am hesitating to answer that question.
Q167 Chairman: I do not want to draw
you into criticism of the Chancellor, I just want to understand
the framework: you can do this, your board in mid-February can
say, licence conditions.
Mr Buchanan: If that is what we
see as the appropriate way ahead, and the companies, if they disagree
with us, can take us to a CC and challenge that.
Q168 Chairman: So, legislation might
avoid a Competition Commission challenge?
Mr Buchanan: That may be what
the decision is, politically, yes.
Q169 Chairman: That is helpful, thank
you very much. Now, direct debits: this is one of the issues that
has taken me a bit by surprise. This Committee has worked on the
basis that direct debits are terribly good news although all of
us, privately, are having problems with our own suppliers about
our own direct debit terms. The BBC breakfast television asked
me to give a clip to them for their Saturday programme, since
when all hell broke loose—here is my file of e-mails, which
I will give to you now, because you said you had not got the evidence,
well there it is. To be fair, some of those e-mails are from people
who just do not understand how much electricity and gas prices
have gone up, they have not had the problems that other people
are facing. But there are a number of systemic problems there
also. I am not going to name the companies now—they did
on the television this morning—but there seem to be two
companies particularly prone to complaint. That may be the small
sample that we have there, a self-selecting sample. One of those
companies may have a profile of customer that lends it to complaint
on this issue; it may be the customer profile and nature of the
customers they have. There are some underlying difficulties. The
trouble is that the articulate people, whose e-mails I have there,
ring up and get a reduction. Each and every one of them rings
up and gets a reduction; that is the underlying theme. Some of
them get more marginal reductions, some of get huge reductions,
as you will see from there. It does look as if the complicated
models that the companies use to do this process, wherever the
benefit of the doubt exists, give the benefit of the doubt to
the company rather than the consumer. We are all lending some
£100, £200, £300 to these companies, interest free.
Mr Buchanan: I hear your concern,
you have given us your concerns, we have asked the Daily Mail
for their equivalent folder and we will investigate that. One
of the interesting knock-ons from it for me is that the Financial
Inclusion Taskforce is looking at how to promote direct debits
to society more broadly, and that it is a good thing. Therefore,
this is extremely important, I would have thought, to them. I
have not spoken to them since this has broken, but they were looking
to make a report in December, I believe, and I will certainly
want to get in contact with them and say that this may affect
their report.
Q170 Chairman: There are quite a
lot of e-mails in there from people acting on behalf of elderly
relatives who are on direct debit. There are one or two quite
dramatic ones: one from a Financial Times journalist who
talks about the experience of her own mother. It is quite clear
that there is a real problem out there for people who are at the
edges of fuel poverty, if not actually in fuel poverty, as well
as for people like ourselves who can take the hit of an extra
£20 or £30 a month that is not justified, even if we
resent it. There is a bit issue there for fuel poverty people.
Mr Buchanan: There certainly is.
Something that may come out of it is that we flush out who are
good and who are bad. My supplier rang me up and said, you are
over here, you are under here, what would you like to do.
Q171 Mr Wright: I guess he knows
who you are.
Mr Buchanan: That was quick. I
cannot answer that one.
Q172 Chairman: My supplier has not
done that to me and, sitting in an equivalent seat yesterday,
the Minister for Energy admitted that he had exactly the same
problem with his supplier. The reason that the BBC Today programme
and the BBC breakfast programme were so interested in this is
that their editorial teams also said that they had the same problem.
A senior civil servant for the Department yesterday said that
he had the same problem. It seems to be extraordinarily widespread
and something rather concerning is going on.
Mr Buchanan: We will certainly
have a look at it.
Q173 Chairman: Looking at the other
complaints you get: the averaging of consumption, miraculously,
many people think they are averaging over 18 months, including
two winters, which enables the average bill to be increased. It
may depend on when the company reassesses your bill, there are
issues there. Issues about estimated bills, of course, are a matter
of great concern also; producing new bills, the time when estimated
bills are used for the calculation, particularly when many of
us—myself included—have taken radical steps to reduce
our consumption because of rising prices, so it is all the more
difficult.
Mr Buchanan: Yes.
Q174 Mr Wright: That is another point
with regard to meter readings, the times that the companies miss
out the meter readings and do the estimates increases substantially
the cost for people on standard credit at the time. They are giving
in excess of perhaps 5% or 10% of their total bill on average
over a period of time, paying well in advance and invariably at
times when people can least afford it. Again, it is the majority
of people on standard credit who are in fuel poverty or are fuel
poor, who can least afford these exorbitant bills when in fact
they are paying for energy that they have not even used.
Mr Buchanan: Right.
Q175 Chairman: Obviously, what I
would like to be able to do is to treat my fuel bill in the same
way as I treat my credit card bill and repay it in full every
month. The trouble is that we have a quarterly billing system
at present and I do understand, to be fair to the companies, that
they would not really want to lend me their fuel for three months
either, that would be working the other way around. The option
of repaying in full every quarter does not exist. The answer is,
of course, smart meters, is it not? Then we could have accurate
monthly bills, which we could pay in full every month, and the
problem would just go away.
Mr Buchanan: Yes. Ofgem has been
an advocate for three or four years for smart meters—I am
sure I bore for Britain on this—and we are very hopeful
that the Government will push on with this in the next couple
of months.
Q176 Chairman: Smart meters have
been talked about in the past as an environmental measure to discourage
consumption, but more and more it is apparently to help the market
work better generally. The Government has now announced a programme,
has it not, which took us all a bit by surprise—pleasantly
so, in some senses—but it is two years of consultation on
how to do it, followed by a ten-year rolling programme. I understand
that it is a complex programme, like converting to natural gas
from town gas, but 12 years hence is quite a long time. Is it
your view that they need 12 years?
Mr Buchanan: The Government has
not yet shown its hand on the method it would like to use. They
have a number of choices: they can use the franchise method, whereby
you compete to win a franchise and you have it for a period of
time; a regulated method; or a market method. If it is a market
method, you basically use quite a lot of stick and a bit of carrot
because you say, you will do it, or you will be penalised under
a licence condition. Therefore, that decision has to be made first
of all and then work out how quickly it will roll out. There has
been a sense that if you go down the market route and you have
got quite a severe stick hanging over the companies, the companies
will go quicker because they will want to get some form of advantage
with their customer base by rolling out faster than that. It really
does depend on where your starting point is going to be, and we
are still waiting for that starting point.
Q177 Chairman: Twelve years, for
me, is the outside acceptable figure; it must be shortened if
humanly possible, it makes a big difference. Can I just be clear
what you promised—me and the Committee—on the direct
debit issue. You said that you will look at it. What form will
that "looking at it" take at this stage? An initial
assessment is what you are going to promise initially?
Mr Buchanan: Indeed, our corporate
affairs team will take it on and have a look at it and see where
we go from there, whether it triggers an enforcement case.
Q178 Chairman: People are a bit puzzled
about the market in which they operate and how they complain.
What many e-mails have been criticising me for saying that I will
raise it with Ofgem. They say that Ofgem does not do complaints.
It is a bit of a muddle out there at present because you have
Consumer Direct, Consumer Focus, the energy companies themselves,
the Energy Ombudsman and Ofgem. Although I am beginning, dimly—as
Chairman of a Committee that scrutinises both Consumer Focus and
Consumer Direct for the Office of Fair Trading, and, temporarily
at least, Ofgem—to understand that it is very confusing
for people out there as to how they can get through this. What
I am trying to establish from you is how you, Ofgem, in future—it
is a fortuitous occurrence today that I have had the direct debit
complaints and presented them to you—be made aware of systemic
failures in the energy market coming through from consumer complaints,
particularly consumer complaints from articulate middle-class
people who do not resort to the Energy Ombudsman but sort it out
themselves. How do you know there is a problem that needs fixing?
Mr Buchanan: If we are the market,
there is a number of routes to our market to bring that to our
attention. The first will be, and Ed Mayo was very clear in saying
that he really believes that the Consumer Direct first port of
call will work and that complaints will flow through to Consumer
Focus, and they have—I forget the name of it but it sounds
like a very good idea—a kind of "zap team" that
will work on major problems—the Extra Help Unit, I think
it is called, which I think is a great idea and which will work
on the acute problems. Obviously, they will interface with the
companies and the companies then have to interface with the statutory
body from 1 October, which is the Ombudsman. Where we will interface
with that, obviously, we will have regular contact with Ed Mayo
and Larry Whitty but, equally, we formally monitor the Ombudsman
and audit them once a year, so I hope that we would get information
from that. We are also going to audit, it is currently ongoing
and we will have the results early in the New Year, the new customer
complaint process. One of the findings from that is that we need
to audit that on a regular basis, but I cannot prejudge what that
finding will be. Our role is as an auditor regulator role, and
the other bodies are doing that interface with the consumer.
Q179 Chairman: If a Member of Parliament
forms a view that there is a failing in the energy market, like
this issue of direct debits, for example, what should he or she
do? Should they write to you and say, here is the evidence I have
received?
Mr Buchanan: Where we come in
on issues like that is that we have the enforcement powers, so
if it is clear that something is going very wrong—mis-selling,
say—if this is something that is effectively an action by
a company, then we can pursue that through our powers. It is another
route to market; it is a very powerful route to market. It is
from yourselves, or from Holyrood, or wherever.
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